Hello friends. We know that one of the methods we need to
understand price movements in financial markets is technical analysis. Based on
our technical analysis knowledge, we can determine when to enter and exit
trades in the market. There are many different tools used in technical
analysis. One of these tools is technical indicators. One of the biggest
advantages of technical indicators is that they do not act emotionally and are
entirely mathematical. Today, we will talk about one of these technical indicators,
the Projection Oscillator.
What is the Projection Oscillator?
The Projection Oscillator (PO) is a technical indicator or
analytical tool used in trading financial markets. This oscillator helps us
make more correct decisions by tracking the price movement of an asset and
predicting future price changes. It is particularly useful for identifying
market momentum and overbought or oversold conditions. The Projection
Oscillator is a composite indicator consisting of a series of mathematical
methods and indicators used to analyze price movements. The PO has a value
ranging from 0 to 100. A reading of 50 signifies that the price is right in the
middle of the two lines and is of critical importance. In some versions of the Projection
Oscillator, there is no 50 line, but we can add it ourselves.
Trading with the Projection Oscillator
This indicator is used to determine the price momentum and overbought or oversold conditions of an asset. It can be considered one of the less preferred technical indicators when trading in the financial markets. It typically produces values within a range of 0 to 100. Levels of 80 and above represent overbought conditions, while levels of 20 and below represent oversold conditions. When the Projection Oscillator (PO) falls below 20 and then rises, it can be a buy signal, and when it rises above 80 and then falls, it can be a sell signal. However, the most commonly used method is to enter a Buy order when the PO crosses the 50 level from below to above and enter a Sell order when it crosses from above to below. For example, take a look at the New Zealand Dollar/Japanese Yen chart below:
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| PO trading in the NZD/JPY chart |
In addition, when the PO (Pink line) crosses above the
signal line (Blue line), a buy signal is generated. When the PO (Pink line)
crosses below the signal line (Blue line), a sell signal is generated. See the
example on the Singapore Dollar/Swiss Franc chart below:
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| Trading with PO in the SGD/CHF |
Keep in mind that the Projection Oscillator is just one technical analysis indicator. Technical analysis indicators cannot be used to predict future price changes with absolute certainty. The Projection Oscillator can also produce false signals. When using any technical indicator, it's important to consider market conditions and other factors.